Take Control of Your Money
Establish a budget
No matter what life stage you're in, the first and most important step is realizing that you have to assume responsibility for your financial well being. And the best way to begin is by taking control of your money. At the most basic level, this means knowing your income and expenses, then, especially if you're spending more than you're taking in, setting up a budget that will allow you to eventually have a positive cash flow. This may mean cutting down on some expenses that aren't necessary, refinancing some loans to get a better interest rate, and minimizing debt expenses (e.g., not using your credit card to make purchases unless absolutely necessary).
Part of creating a budget is establishing an emergency fund — money that's readily available to meet unexpected expenses. The amount you should have may depend on many factors, including your income, your health, and other assets you may have that are available in case of an emergency.
Set and prioritize financial goals
One of the benefits of creating a budget is that it allows you to save for short-term and long-term financial goals. Short-term goals may include making sure that your cash reserve (e.g., emergency savings) is adequately funded or paying off outstanding credit card debt. Long-term goals might include saving for a new home, an early retirement, or your child's education. Once you've established your goals, you'll want to prioritize them. Since you may not be able to save enough to reach all of your goals, you'll have to decide which of your financial goals are most important to you.
Now it's time to save
After you've determined your financial goals, you'll want to know how much you'll have to save to reach each goal. Next, you can focus on implementing appropriate investment strategies to give you the best chance of attaining your financial goals. Determining the appropriate investment strategies for you isn't an exact science. But to help, ask yourself the following questions:
- How long do I have to save, or what is my time horizon?
- What is my emotional and financial tolerance for risk?
- What are my liquidity needs?
Once you've answered these questions, you'll be able to tailor your investments to help you target specific financial goals.
Become a More Knowledgeable Investor
Whether you're an experienced investor or a novice, there's always room to learn more and adjust your plan based on your current circumstances. Part of taking control of your money involves being able to target a return on your money that's aligned with your financial needs and goals. Investing involves taking a certain amount of risk as part of a carefully planned and prepared approach to managing your money, with the goal of accumulating the funds you need. And planning your investment strategy involves patience and discipline.
If you're new to investing, take small steps and learn some basic information, such as asset classes, risk tolerance, time horizon, diversification, inflation, investment vehicles such as 401(k)s and IRAs, and the role income, growth, and stability play in your investment strategies and plan. Experienced investors should reevaluate investment goals, time horizons, and risk tolerance. Identify the types of investments you have and consider whether they are best suited for your current needs and goals.
Traits of a "good" investor
What are some common traits of a "good" investor? The first may be a willingness to ask questions and learn concepts along the way.
"Good" investors know when to hold on to an investment and when to sell one. Many investors' portfolios have suffered because they waited for a turnaround that might never come instead of recognizing an investing mistake and dealing with it. "Good" investors know how to take profits; great investors know how to take losses.
While holding on to an investment strategy too long can be detrimental to your savings; excessive trading may also lead to underperforming portfolios. Learning to be a patient investor can allow you to reap benefits over the long haul.
If you feel unsure about your investing skills, you may take the path of least resistance and invest very conservatively. While this isn't always a bad course to take, it may not be appropriate for your goals and circumstances. All investing involves some risk, including the potential loss of principal, and there can be no guarantees that any investment strategy will be successful. But perhaps the biggest risk of all is not taking the steps needed to help secure your financial future.
Finally, being a "good" investor doesn't mean you need to do all the work yourself. A financial professional can help you set a strategy, select specific investments, monitor their performance, and make adjustments as circumstances dictate. There is no assurance, however, that working with a financial professional will improve investment results.
Take Charge of Your Career
Having a well-paying job is a major concern for most people, but it's no secret that there's often a gender gap when it comes to pay. According to a report from the Bureau of Labor Statistics, within most occupational categories, women who work full-time earn less than men (Source: U.S. Bureau of Labor Statistics, Women in the Labor Force: A Databook, March 2022). Earning less not only affects your paycheck, but also the amount you can contribute to your retirement plan, as well as future pay increases and bonuses that are often tied to current salary. Here are a few issues you'll want to pay close attention to.
Salary and career advancement
Start by checking with your employer about salary ranges or pay scales, the criteria for pay adjustments, and the timetable for compensation review. You can also check out comparable salary ranges for someone in your occupation and geographic location through Internet websites. Then, be prepared to articulate your strengths and specific achievements. Don't assume that the first salary or pay increase you're offered is the last. In addition to pay, bonuses, and other tangible rewards, find out what opportunities exist for advancement, including management training, mentor programs, and networking opportunities.
Employee benefits
Employer-provided benefits can help provide a safety net for you and your family. You may be most familiar with employer-sponsored retirement plans and group health insurance. But your employer may offer other benefits that can help you and your family that you may not be fully utilizing, including flexible spending accounts that allow you to contribute pretax dollars for dependent care and health care costs, sick leave and disability policies that can make a big difference in your ability to take care of yourself and your family, and employer-provided educational assistance that can help you further your career.
Work-life balance
Balancing the demands of career and family is one of the major issues people face during their working years, particularly women. Employers are recognizing that providing work-life balance programs are key to having a diverse, gender-neutral workforce, and they are increasingly offering flexible schedules, such as telecommuting or compressed workweeks, to help employees meet personal needs and responsibilities
Plan for Retirement
Statistically, women have a longer life expectancy than men, which means women are more likely to need their retirement savings to last longer. Yet women generally earn less than men and often leave the workforce to provide caregiving. As a result, their retirement plan balances, Social Security benefits, and pensions are often lower. In order to meet these financial challenges, women need to make retirement planning a priority.
Estimate your retirement income needs
To help improve your chances of realizing a financially secure retirement, start with a realistic assessment of how much income you'll need in retirement and how long you expect to need it. Then estimate your sources of income, such as Social Security, pensions, and any other sources of fixed income. The difference between the total income you anticipate having and the amount of income you'll need represents how much you'll have to take from your savings.
Begin saving now
Save as much as you can. You may have several options, including employer-sponsored retirement plans such as 401(k) or 403(b) accounts. Your contributions are deducted directly from your pay, and some employers will even match a portion of what you contribute. And if you don't have the opportunity to save through an employer, you may be able to contribute to a traditional or Roth IRA, or other type of retirement savings vehicle.
Plan for income in retirement
Having a longer life expectancy means that outliving retirement income is a realistic concern for many women. Here are some tips that may help ensure that income will last through retirement:
- Establish a target age for your retirement. The longer you delay retirement, the longer you can potentially build up tax-deferred funds in your IRAs and employer-sponsored plans or accrue benefits in a traditional pension plan.
- Estimate your health-care costs in retirement. Medicare generally doesn't start until age 65. If you retire before age 65, will you be covered through your employer or as a dependent on your spouse's plan? Remember, coverage can be lost due to divorce, job loss, or death of your spouse.
- Account for Social Security. While you can begin taking retirement benefits as early as age 62, your benefit may be 25% to 30% less than if you waited until full retirement age. Delaying benefits past full retirement age will increase your benefit each year until age 70.
Protect Your Income and Assets
Every day, women face a variety of risks to their life, their health, and their property. Although you can't eliminate many of these risks, you can take steps to guard against resulting financial losses. Insurance is the primary way to provide both peace of mind and financial security to you and your loved ones.
Health Insurance - Most plans provide basic coverage for common medical expenses, such as doctor visits, preventive care, diagnostic tests, hospital and extended care, emergency services, and prescription drugs.
Auto Insurance - Liability insurance provides compensation to persons who would be able to sue you. Property damage insurance includes collision and comprehensive coverage.
Life Insurance - Life insurance provides income replacement to your survivors with an income-tax-free death benefit. The proceeds from a life insurance policy can also be used to pay for funeral expenses and even medical expenses of a final illness. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.
Homeowners insurance - Homeowners insurance covers a variety of risks that can cause damage to your home and personal property, including medical payments for injuries to occupants and to other persons injured by accidents while in your home, and loss or theft of personal property.
Liability Insurance - As a last line of defense against potentially devastating claims for things over which you have little or no control, liability insurance, customarily in the form of umbrella insurance, provides extra coverage over all liability insurance, such as auto and homeowners.
Disability Insurance - In the event you are out of work due to an injury or illness, disability income insurance benefits can be used to help you maintain your lifestyle while you recover, provide a chance to retrain for another job if necessary, and conserve your assets and savings for you and your family.
Long-Term Care Insurance - Without long-term care insurance, expenses related to providing custodial care for an extended period of time (generally not covered by health insurance or Medicare) could wipe out your savings in a relatively short time. Long-term care insurance pays benefits if you need extended care, such as nursing home care.
Create an Estate Plan
There's no doubt that planning for your financial well-being is important for everyone, especially women. But you should also plan for the possibility that you may become incapacitated or otherwise unable to manage your finances, as well as the ultimate distribution of your assets and property at your death. Estate planning involves mapping out the way you want your personal and financial affairs to be handled in the case of your incapacity or death.
Why is estate planning so important for women? The fact is that women live on average about 5 years longer than men. This means women are more likely to live alone at the end of their lives.
Incapacity can happen to anyone at any time, but your risk generally increases as you grow older. Failing to plan may mean a court would have to appoint a guardian who would be empowered to make decisions that might be different from what you would have wanted. Health-care directives and living wills can help others make sound decisions about your medical treatment and life-prolonging measures if you are unable to do so.
Another important document that can help with the management of your financial affairs during a period of incapacity or unavailability is a durable power of attorney. This document allows you to appoint someone to manage your financial affairs should you be unable to do so, either temporarily or for an extended period of time.
Without a will, your property at your death will be distributed according to your state's intestacy laws, without consideration for your actual wishes. Through a will, you can direct how your property will be distributed, who will act as personal representative of your estate, and who will be guardian of your minor children.
There are several other estate planning documents you may use to effectuate the desired distribution of your property and assets, including a trust. The trust can be created as part of your will (testamentary trust) and not have any legal effect until your death. Or you can create a trust while you're alive (inter vivos trust) that allows you to manage your trust assets while you're alive and capable, but that names a successor trustee to take over management of trust assets should you become incapacitated. You can also direct how trust assets are to be distributed at your death.
Trusts incur upfront costs and often have ongoing administrative fees.
